The U.S. Supreme Court Passes on Chance to Weigh in on California’s Climate Change Initiative

On June 30th the Supreme Court of the United States declined to grant the petition for certiorari by plaintiff-appellees in the case Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070 (9th Cir. 2013), cert. den’d 134 S.Ct. 2875 (June 30, 2014) . The plaintiffs sought to strike down a major component of California’s climate change initiative (AB 32),[1] arguing that certain regulations violated the dormant Commerce Clause. The question at the heart of the lawsuit was whether California could regulate greenhouse gas (GHG) emissions based on regulators’ unique accounting method called “lifecycle analysis.”

Lifecycle analysis, colloquially deemed, “well to wheel accounting” allows regulators to tally the total amount of GHG emissions from sources of automotive fuel (i.e. crude oil and various types of corn and sugar cane ethanol blended gasoline) by including emissions generated during production, refinement and transportation. The law creates declining caps regulating the total amount of GHGs that may be emitted from sources sold in California under the state’s Low Carbon Fuel Standard (LCFS).

The lifecycle analysis calculates the net GHGs emitted in the life of a fuel including those during production and refinement, transportation, and combustion, and offsets where carbon may actually be absorbed in a growing phase (like corn-ethanol). The program allows for regulated parties—farmers, producers, refiners and sellers of automotive fuels such as crude oil and corn-ethanol that sell—to trade emissions or pay fines if they exceed the emissions allowed for a given fuel source under the lifecycle analysis. The Rocky Mountain Farmer’s Union (RMFU) and other plaintiffs representing “big oil and big ethanol”[2] filed suit against CARB seeking injunctive relief from the LCFS regulations, alleging they were a violation of the dormant Commerce Clause. RMFU alleged that because the LCFS regulations increased the cost of doing business in California (by either forcing out of state producers to pay fines or changing production methods to decrease GHG emissions in compliance with the law), the LCFS impermissibly disadvantaged out-of-state sellers who emitted more emissions than in-state sellers, because of their production model or because of emissions generated during transportation of the fuel to California.

The District Court agreed with the plaintiffs, finding that the LCFS did facially discriminate against out of state commerce.[3] However, in an outspoken but divided decision, the Ninth Circuit reversed the California District Court’s decision, neither finding that the LCFS are facially discriminatory nor an impermissible extraterritorial regulation. The plaintiffs’ petitioned for rehearing en banc, but their request was denied, accompanied by a scathing dissent from Ninth Circuit Judge Smith who wrote that the LCFS threatens “to balkanize our national economy.”[4]

The Supreme Court passed on a chance to clarify the application of the dormant Commerce Clause to climate change laws, an emerging area of regulation. One question that remains is whether certain climate change laws may fall outside traditional categories of dormant Commerce Clause analysis. To explain: emissions are diffuse, and once generated, it matters not from where they came, but only that they contribute to a mass of gases trapping heat in the earth’s atmosphere leading to climate change across the globe. Traditionally, the dormant Commerce Clause allows states to regulate commerce on the bases of traditional police power (health, safety, morals, and welfare) such as the regulation of traffic laws, smoking regulations, speed limits, and so on. Because climate change is not a problem that is confined to state borders, it transcends classification of ordinary exercises of state police power. While the law’s purpose is to stem climate change in California, the benefit is not limited to California. Thus, one can argue that state boundaries should play no part in state efforts to combat climate change.

While the Ninth Circuit emphasized the importance of reacting to climate change and stemming problems it has and will cause, it analyzed the legal question here with a traditional focus. So for now, the application of the dormant Commerce Clause doctrine to emissions regulations falls in line with traditional understanding.

The outcome of the case may have ripple effects across the country. With at least some indication that LCFS will survive dormant Commerce Clause and extraterritorial legal challenges, other states are adopting similar standards. Presently 11 states in the northeast and mid-Atlantic are adopting LCFS, as well as Oregon and Washington.[5] New research on California’s LCFS shows that the regulation is working as intended: to reduce emissions, save consumers money, and diversify the energy market.[6] California’s LCFS is “reducing carbon pollution and will save consumers $837 million per year by 2020 as a result of increased diversification and competition of fuel suppliers, according to a study published this week.”[7]